Real Estate Brokerage Law • Defense of Realtors® • Commission Claims

A Lawyer for Real Estate Brokers and Agents

Do you have a claim against a party or another broker for a commission?

If you answered "Yes" to any of the above, then you should contact Mr. Millar.

Don't trust your legal interests to just any attorney. Experience matters. You don't want a lawyer learning about the laws that apply to Realtors® during your case. You don't want to pay for a lawyer to come "up to speed". You don't want someone who might miss an important question or defense because they simply have little or no experience representing Realtors®. You want an attorney with the knowledge and experience to get the best possible outcome for you.

Michael Millar has been defending real estate brokers and agents for more than ten years. He has handled more than 125 such cases. He knows the statutes, administrative code provisions and case law that governs Realtor® liability and their right to a commission.

Choose an an experienced and knowledgeable attorney. Choose Michael Millar.

Why Do New Jersey Realtors® Get Sued?

Why are New Jersey real estate brokers and agents sued?

While there are a myriad of fact patterns giving rise to lawsuits against real estate brokers and agents, there is one driving force behind the vast majority of the lawsuits - the New Jersey Consumer Fraud Act (the "CFA").

The CFA provides that if a plaintiff wins, the defendant must pay treble (3X) damages and the plaintiff's attorney fees. Plaintiff's attorneys see those numbers and salivate. Even if they cannot prove damages, if they can prove a technical violation of the CFA they get tens of thousands of dollars - sometimes over a hundred thousand dollars - in attorney fees.

Although the Consumer Fraud Act contains the word "Fraud" - the law does not require that a plaintiff prove a fraud in order to win. Even a negligent statement can result in CFA liability. For example, if an MLS advertisement states that there is hardwood flooring under the carpets - and it turns out that portions of the hardwood floors have been removed and replaced with plywood (I've had this case), then the listing Realtor® may have committed Consumer Fraud and is subject to the enhanced (3X) damages and payment of attorney fees.

Finally, you should know that CFA damages and attorney fees are not covered by E&O insurance - if found liable, a real estate agent or broker will have to pay out of his or her own pocket.

I have defended real estate brokers and agents in over one hundred lawsuits in state and federal courts over the past ten years. In that time, I have observed that while there is no “magic bullet” that will prevent lawsuits from being filed against real estate brokers and agents, there are some simple, no cost or low cost actions one can take to reduce the risk and cost of lawsuits.

Every lawsuit is different and each is dependent on the facts of the particular transaction from which it arises. One common type of lawsuit against real estate brokers and agents is the “undisclosed defective condition”. This type of lawsuit involves claims such as mold in the basement or attic, a prior renovation that altered a weight bearing structure, termite infestation, pet damage, drainage easements or other types of easements, and zoning restrictions. A broker and agent can easily limit their exposure to this type of claim at little or no cost by requiring a Seller’s Property Condition Disclosure Statement (“Sellers Disclosure”) in every transaction.

When I am assigned to the defense of a real estate broker or agent, the first thing I do is request a copy of the transaction file from the broker. I am always surprised when I find that the broker’s file does not contain a Sellers Disclosure. It appears to me that the failure to obtain a Sellers Disclosure is the result of a wide spread lack of understanding of just how important this document is to a broker or an agent in a lawsuit.

A little background will help one understand why the Seller’s Disclosure is so important. The Sellers Disclosure is part of the New Jersey Consumer Fraud Act (“CFA”). See N.J.S. 56:8-19.1. Consumer fraud is the single most common claim I see in lawsuits brought against real estate brokers and agents. The CFA provides that a successful plaintiff will be awarded three times the actual amount of damages and that the defendant must pay the plaintiff’s attorney fees and costs. For example, if a plaintiff proves $50,000 in damages - he or she will be awarded three times that amount or $150,000. Further, the defendant will be required to pay the plaintiff’s attorney fees - which in a fairly simple case can be more than $35,000 and in a complex case can be well over $100,000. Thus, a $50,000 CFA claim can cost a real estate broker and/or agent over $250,000. And, importantly, CFA claims are not covered by errors and omissions (“E&O”) insurance policies. Thus, a judgment against a broker or agent means that the broker or agent has to pay the judgment out of his/her own personal funds.

Given the onerous damages that may be awarded in a CFA action and given that such damages will not be covered by E&O insurance, brokers and agents should be pro-active in limiting their exposure to CFA claims. The good news is that brokers and agents can do so for little or no cost by obtaining a Sellers Disclosure in every transaction.

Homeowners are not subject to the CFA. Thus, a homeowner, who either negligently or intentionally misrepresents a condition of the home, cannot be sued under the CFA. However, a real estate broker and/or agent can be sued under the CFA for providing false or misleading information to a Buyer that originally came from the homeowner. Many real estate brokers and agents rightly viewed this situation as unfair. In response, the New Jersey Association of Realtors® and others lobbied for an amendment to the CFA that would protect them from the award of treble damages and attorney fees. That amendment, N.J.S. 56:8-19.1, was first passed in 1999 and was later amended in 2004. It is commonly known as the Realtors’® “Safe Harbor”. It is this safe harbor law that created the Sellers Disclosure and it why you should require a Sellers Disclosure in every transaction.

How does one qualify for the safe harbor?

To qualify for the safe harbor, a broker and/or agent must meet three conditions:

(1) The broker and/or agent must not have had actual knowledge of the condition alleged in the lawsuit. N.J.S. 56:8-19.1(a). A real estate broker and agent is always under a duty to disclose a defective condition that they know of. Weintraub v. Krobatsch, 64 N.J. 445 (1974)

(2) The broker and/or agent must provide the Buyer with a Sellers Disclosure that informs the Buyer that the seller is the source of the information found in the disclosure. N.J.S. 56:8-19.1(b)(3) . The form Sellers Disclosure does just this. It contains a representation in the first paragraph and one in the paragraph over the Buyer’s signature line that informs the Buyer that the source of the information found in the disclosure is the Seller alone. Best practices dictates that the Realtor® have no input into completing the Sellers Disclosure. The Realtor® should hand the Sellers Disclosure and then leave. The Realtor® should retrieve the Sellers Disclosure a day or two later and after the Seller alone has completed it.

(3) The broker and/or agent must perform a visual inspection of the property “to ascertain the accuracy of the information disclosed by the seller.” N.J.S. 56:8-19.1(b)(3). This final requirement does not require that a real estate broker or agent perform a home inspection for latent (hidden) defects. A broker or agent is not expected to check behind walls or enter attics or crawl spaces or test for mold. Rather, the broker or agent is simply required to walk through the property to see if there is any readily observable condition that differs from what is represented on the Sellers Disclosure. It should be noted that New Jersey Real Estate Commission regulations require every real estate broker or agent - whether representing the Seller or the Buyer - to visually inspect the property to determine if there are any readily observable conditions that affect the property. N.J.A.C. 11:5-6.4(b)(ii). Further, a common mistake made by Realtors® is that they fail to conduct an inspection after receiving the Sellers Disclosure. That is a mistake. You cannot rely on the inspection that you performed when you obtained a listing agreement and before you received the Sellers Disclosure. Rather, AFTER you receive the Sellers Disclosure you MUST perform an inspection prior to handing the Sellers Disclosure to a prospective buyer.

In sum, to qualify for the CFA safe harbor, a broker or agent must: (1) have no actual knowledge of the allegedly defective condition, (2) obtain a Sellers Disclosure that is completed soley by the Seller, and (3) perform a visual inspection after receiving the Sellers Disclosure for open and obvious conditions that differ from what is stated on the Sellers Disclosure.

{Note: There are other ways to qualify for the safe harbor, but this paper focuses solely on the Sellers Disclosure. See N.J.S. 56:8-19.1}

When should you obtain a Sellers Disclosure?

A Sellers Disclosure should be required in EVERY sale or rental of an existing residential property. It does not matter if the home is a sale by an estate and the Seller has never lived there - get a Sellers Disclosure. Remember, the Sellers Disclosure is not for the benefit of the Buyer or the Seller - it is for the benefit of the real estate broker and agent. It shields the broker and agent from claims for treble damages and attorney fees under the CFA. If you represent a Seller, make it an office policy to obtain a Sellers Disclosure with every listing agreement. If you represent a Buyer, make it an office policy to write into every Contract of Sale that the Seller must provide a Sellers Disclosure.

In sum, the most common claim brought against real estate brokers and agents is consumer fraud for an undisclosed latent defect or condition. A consumer fraud claim can result in treble damages and attorney fees which are not covered by E&O insurance. This risk can easily be addressed at little or no expense by providing a Buyer with a Sellers Disclosure in every transaction.

Does a Realtor® Commit an Act of Consumer Fraud by Providing a Seller’s Property Disclosure Statement to a Buyer, if the Seller’s Disclosure Contains a Misrepresentation Made by the Seller?

The most common claim made against real estate brokers and agents in New Jersey is an alleged violation of the New Jersey Consumer Fraud Act (the “CFA”). [EN1]

The CFA provides for a mandatory award of treble (3X) damages and payment of the plaintiff’s attorney fees and costs when the plaintiff proves both a violation of the Act and damages arising from the violation. [EN2] New Jersey courts have created an exception to the CFA, finding that homeowners are not liable under the CFA when they sell their own home. [EN3] However, the courts have further ruled that real estate brokers and agents are subject to the CFA and that they may be liable for repeating a misrepresentation of fact first communicated to them by the seller. [EN4] Thus, the real estate broker and agent may be liable when the seller is not – and where the seller is the source of the alleged misrepresentation.The CFA’s promise of enhanced, punitive damages and attorney fees against real estate brokers and agents provides a powerful incentive to sue the broker and agent in any dispute between a buyer and a seller of real estate.

One issue facing New Jersey Realtors® is whether, simply by providing a Seller’s Property Condition Disclosure Statement to a buyer, a Realtor® commits an act of consumer fraud if the seller has made a misrepresentation of fact in the disclosure.

The Three Types of CFA Violations

The CFA provides, in relevant part, that:

"The act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any … real estate, … is declared to be an unlawful practice…"[EN5]

CFA violations fall Into three basic categories.

The first category is an affirmative misrepresentation of fact. An affirmative misrepresentation violates the CFA even when made without knowledge that the statement is untrue and when made with no intent to mislead. [EN6]

The second category is a “knowing omission” or concealment of a material fact, accompanied by the intent that others rely upon the omission or concealment. [EN7]

The third category is a violation of a specific regulation promulgated under the CFA. In this last category, the unlawful practice may be proven without the need to show intent. [EN8] The third category of CFA violation, a regulatory violation, is only applicable to regulations enacted by the New Jersey Division of Consumer Affairs (“DCA”) under the CFA. [EN9] The regulations setting forth the duties of New Jersey Realtors® - e.g., N.J.A.C. 11:5-6 - are not enacted by the DCA and are not enacted under the CFA. Rather, the New Jersey Real Estate Commission is responsible, under its own rule making authority, for enacting regulations governing the duties of Realtors®. [EN10] Therefore, violating a regulation enacted by the New Jersey Real Estate Commission is not a violation of law and is not an act of consumer fraud. [EN11]

Having eliminated the third category - regulatory violations - as a means of CFA liability for Realtors®, leaves only the first two categories - affirmative misrepresentations and knowing omissions. Virtually every case brought against a New Jersey real estate broker and/or agent involves either a claim that the broker/agent misrepresented some fact to the plaintiff or that the broker/agent had knowledge of a material fact but failed to disclose it. [EN12]

The CFA Safe Harbor

Because, among other reasons, a Realtor® may be found liable under the CFA for repeating a statement made by his or her client - and the client has no CFA liability for making the statement - the New Jersey Association of Realtors® successfully lobbied the New Jersey legislature to pass an amendment to the CFA - a Realtor® “Safe Harbor” - which shields the Realtor® from treble damages and attorney fees for conveying information supplied by a Seller to the Buyer if the Realtor® follows certain steps. [EN13] The CFA Safe Harbor led to the creation of the Seller’s Property Condition Disclosure Statement (the “Seller’s Disclosure”). From the perspective of real estate brokers and agents, the primary purpose of the Seller’s Disclosure is to shield them from CFA punitive damages if they are sued. To qualify for the CFA Safe Harbor, the Realtor® must meet the following four conditions:

1 Does not know of the defective condition. (A Realtor® always has a duty to disclose all material facts known to the Realtor® [EN14]); 2 Obtains a Seller’s Disclosure completed solely by the seller; 3 After obtaining the Seller’s Disclosure, performs a visual inspection of the property and the home to see if anything differs from what is represented by the seller in the Seller’s Disclosure; 4 Provides the Seller’s Disclosure to the buyer prior to the conclusion of attorney review.[EN15]

What Happens to the Realtor® When the Seller’s Disclosure Contains a Misrepresentation of Fact Made by the Seller?

The Seller’s Disclosure contains over 100 questions. The Seller’s Disclosure is both a blessing and a curse. It is a blessing because it may shield a New Jersey Realtor® from punitive damages and attorney fees under the CFA. It may be a curse because it may expose the Realtor® to CFA liability for misrepresentations made by a seller concerning a myriad of issues that the Realtor® would otherwise make no representation whatsoever.

Some plaintiff’s attorneys have argued that the mere conveyance of a Seller’s Disclosure is an act of consumer fraud made by the Realtor® if the Seller’s Disclosure contains a misrepresentation made by the seller. The law is unsettled on this point. There is no published decision by any court in New Jersey - as of January 2015 - that provides guidance. There is, however, an unpublished decision, made by the New Jersey Appellate Division that discusses the issue. [EN16]

New Jersey, like the federal government, has three levels of courts - the Law Division (trial court), the Appellate Division (mid-level appellate court) and the Supreme Court (highest court). The decision of a higher court on an issue is controlling on a lower court. A trial court must follow a decision made by the Appellate Division. However, there is a difference between a published and an unpublished decision. A published decision must be followed. An unpublished decision is merely “persuasive authority” - i.e., it is instructive, but it does not have to be followed.

The Holt v. Laube Case

In October 2002, plaintiffs, Mr. & Mrs. Holt, expressed an interest in purchasing a home owned by Mr. & Mrs. Laube. Coldwell Banker represented the seller. Re/Max represented the buyer. A Contract of Sale was completed and Coldwell Banker provided a Seller’s Disclosure to plaintiffs. In December 2002, while the contract with the Holts was pending, Mr. & Mrs. Laube conveyed the property to a relocation company – Primacy. Primacy completed a second Seller’s Disclosure and provided it to the Holts along with the original Seller’s Disclosure prepared by the Laubes. The Primacy Seller’s Disclosure stated Primacy was a relocation company, had not lived in the property and that it made no representations or warranties concerning the property. After the purchase, a retaining wall on the property collapsed. The Holts sued alleging the Laubes had made misrepresentations in their Seller’s Disclosure concerning the construction of the retaining wall and that both Coldwell Banker and Primacy had committed consumer fraud by providing them with a copy of the Laubes’ Seller’s Disclosure.

As to Primacy, the trial court dismissed the CFA claim finding the statements made in the Seller’s Disclosure were not made by Primacy. The Appellate Division upheld that ruling. [EN17] The Appellate Division stated:

"Plaintiffs nevertheless allege that Primacy is liable under the CFA for affirmative misrepresentations allegedly made by the Laubes in their SDS, which Primacy had provided to plaintiffs. However, those statements were made by the Laubes, not Primacy. Here, Primacy did not make any representations as to whether the Laubes had obtained all permits required for the construction of the retaining walls. Although Primacy furnished plaintiffs with a copy of the Laubes’ SDS, Primacy never indicated that the Laubes’ statements were accurate or acceptable. … We therefore conclude that the trial court correctly determined that Primacy was entitled to summary judgment."[EN18]

In Holt, after affirming the summary judgment order dismissing the CFA claim against Primacy, the Appellate Division next turned to the consumer fraud claim asserted against the real estate broker – Coldwell Banker. The plaintiffs argued both that the real estate broker had an obligation to investigate inconsistent statements made in the Seller’s Disclosure and that the real estate broker had made a misrepresentation to the plaintiffs by conveying the Seller’s Disclosure to them. The Appellate Division rejected both arguments stating:

"We next consider plaintiffs’ contention that the trial court erred by dismissing their CFA claims against Coldwell. Plaintiffs assert that the Laubes made inconsistent statements on their SDS and Coldwell had a duty to investigate those inconsistencies. Plaintiffs claim that these inconsistent statements constitute affirmative material misrepresentations by Coldwell that violate the CFA. We are not persuaded by these arguments.•••… Furthermore, there is no basis for a claim against Coldwell based on a failure to disclose material facts regarding any deficiency in the retaining walls. As the trial court noted, there was no evidence that Coldwell was aware of any problem with the retaining walls and acted to conceal it. We are therefore convinced that the trial court correctly determined that Coldwell was entitled to summary judgment.”[EN19]

In Holt, the Appellate Division ruled that a Realtor® does not make a “representation” by conveying a Seller’s Disclosure to a buyer. Rather, a plaintiff must show either that the Realtor® made a representation, found to be false, independent of the Seller’s Disclosure or that the Realtor® had actual knowledge of a defective condition that was not disclosed.

Other Reasons a Seller’s Disclosure Should Not Create Realtor® Liability.

In Holt, the Appellate Division ruled that a Realtor® does not make a representation in a Seller’s Disclosure - and that without a representation there can be no misrepresentation. However, that is not the only argument that could or should be advanced for why a Realtor® should not be found to have violated the CFA by providing a Seller’s Disclosure to a buyer.

(1) The Seller’s Disclosure Expressly Provides that the Realtor® Does Not Make a Factual Representation in the Form.

The text of the Seller’s Disclosure expressly provides that all answers are provided solely by the seller. A buyer cannot read the Seller’s Disclosure and then claim they reasonably believed the representations made in the disclosure were made by the Realtor®.

(2) The CFA Safe Harbor Does Not Create a New Type of CFA Violation

Plaintiffs may argue that the CFA Safe Harbor speaks of a Realtor’s® liability for communicating false information provided by a seller to a buyer. However, the CFA Safe Harbor does not create a new class of consumer fraud violations. The CFA Safe Harbor does not define what acts or omissions constitute a violation of the CFA.

CFA violations are defined at N.J.S.A. 56:8-2 (misrepresentations and knowing omissions) and N.J.S.A. 56:8-4 (certain regulatory violations). The damages permitted by the CFA are defined at N.J.S.A. 56:8-19 (treble damages and attorney fees). N.J.S.A. 56:8-19.1 - the CFA Safe Harbor - defines an exception to the damages required by that section, i.e., the damages required by N.J.S.A. 56:8-19.

The CFA Safe Harbor sets forth what steps a Realtor® must take to be shielded from punitive damages and attorney fees. The CFA Safe Harbor does not state that by complying with the requirements of the CFA Safe Harbor -_ i.e._, by providing a Seller’s Disclosure - a Realtor® has committed an act of consumer fraud. The CFA Safe Harbor is not intended to create a new type of CFA violation. Rather, the CFA Safe Harbor merely defines what steps must be taken to be shielded from the punitive damages mandated by the CFA.

(3) A Finding That the CFA Safe Harbor Creates Liability Requires an Illogical Interpretation of the Statute.

In enacting the CFA Safe Harbor, the New Jersey Legislature created certain requirements – e.g., the seller alone must complete the Seller’s Disclosure and that the Realtor then must provide the Seller’s Disclosure to the buyer - that a Realtor® must follow to avoid punitive damages. A plaintiff who argues that a Realtor has committed an act of consumer fraud by providing the Seller’s Disclosure to the Buyer, is arguing that the New Jersey Legislature intended and required that Realtors® commit acts of consumer fraud against New Jersey consumers so that the Realtor® can then be shielded from punitive damages for their acts of consumer fraud. That makes no sense. The purpose of the CFA is to reduce instances of consumer fraud and to punish those who commit acts of consumer fraud. It is illogical to interpret the CFA Safe Harbor so that it is intended to require that more acts of consumer fraud be committed and that those who commit acts of consumer fraud should then be shielded from the punitive damages required by the CFA.

A court must interpret a statute in such a way that it does lead to illogical or absurd results. [EN20] It makes no sense to interpret the statute - the CFA Safe Harbor - to mean that the New Jersey Legislature intended that a Realtor® must first commit an act of consumer fraud before a Realtor® can be shielded from punitive damages. It is an illogical and absurd reading of the statute. A more logical reading of the statute would be that providing a Seller’s Disclosure - which is required by the CFA Safe Harbor - is not an act of consumer fraud.

A Seller’s Disclosure Should be Used in Every Transaction.

Regardless of how the issue plays out in the courts, New Jersey real estate brokers and agents are advised to use a Seller’s Disclosure in every transaction. The Seller’s Disclosure is required to obtain the CFA Safe Harbor - to be shielded from treble damages and attorney fees. Without the CFA Safe Harbor, for a successful CFA claim, $35,000 in damages could be worth over $200,000 when that amount is trebled and attorney fees are added in.

Conclusion

So, does a New Jersey Realtor® commit a violation of the Consumer Fraud Act when he or she provides a Seller’s Property Condition Disclosure Statement, which contains a misrepresentation made by the seller, to a buyer?

The answer, at this point, is unclear. No reported court decision has directly decided the issue.

However, the unreported decision of the New Jersey Appellate Division in Holt provides some guidance. The Appellate Division, in Holt, indicated that a Realtor® does not make a representation in a Seller’s Disclosure - only the seller does. If the courts eventually follow the Holt decision, a Realtor would not have liability for providing the Seller’s Disclosure to a buyer.

[EN11] Stoecker v. Echevarria, 408 N.J.Super. 597, 624 (App. Div.) (violating Realtor® duties found in N.J.A.C. 11:5-6 is not a violation of law and is not a violation of the Consumer Fraud Act) certif. den. 200 N.J. 549 (2009). [EN12] See, for example, Vagias v. Woodmont Properties, LLC, 384 N.J.Super. 129 (App. Div. 2006) (affirmative misrepresentation - agent liable under CFA for telling buyer that home was located in Towaca section of Towaca Township when it was not, even though agent did not know that her statement was incorrect); Ji v. Palmer, 333 N.J.Super. 451 (App. Div. 2000) (knowing omission - plaintiff claimed that broker knew that home marketed as a multi-family home was zoned only for single family use).

[EN20] See American Fire and Cas. Co. v. New Jersey Div. of Taxation, 189 N.J. 65, 81 (2006) (Courts must “construe statutes in a manner that avoids unreasonable results unintended by the Legislature.”); State v. Lewis, 185 N.J. 363, 369 (2005) (“[A] court should strive to avoid statutory interpretations that lead to absurd and unreasonable results.”) (citation and quotation omitted).

Does a New Jersey Realtor® Have a Duty to Disclose a Murder or Suicide at a Listed Property?

Every New Jersey Realtor® has a duty to “make [a] reasonable effort to ascertain all material information concerning the physical condition of every property for which he or she accepts an agency.” N.J.A.C. 11:5-6.4(b). A “reasonable effort” has two requirements”: (1) inquiries of the seller or the seller’s agent concerning physical conditions that affect the property, and (2) a visual inspection of the property to determine if there are any readily observable conditions that affect the property. N.J.A.C. 11:5-6.4(b)(1). “[I]nformation is ‘material' if a reasonable person would attach importance to its existence or non-existence in deciding whether or how to proceed in the transaction, or if the [Realtor®] knows or has reason to know that the recipient of the information regards, or is likely to regard it as important in deciding whether or how to proceed.” N.J.A.C. 11:5-6.4(b)(2). Finally, New Jersey Realtors® have a duty to “disclose all information material to the physical condition of any property which they know or which a reasonable effort to ascertain such information would have revealed”. N.J.A.C. 11:5-6.4(c).

In a nutshell, every Realtor® has a duty to investigate a property for physical conditions that a reasonable person would find important when deciding to purchase the property, and if the Realtor® has reason to know of any special needs or concerns of a client, the Realtor® must investigate for those concerns too. Furthermore, a Realtor® has a duty to divulge those material facts in his or her knowledge to potential buyers.

Is a murder, a suicide or a murder-suicide a “physical condition that affects the property” so that a Realtor® must disclose the event to a potential buyer?

No New Jersey court has ruled on the issue. However, in the Summer of 2014, the Pennsylvania Supreme Court addressed this very issue. Milliken v. Jacono, 103 A.3d 806 (PA 2014).

In Milliken, in February 2006, a prior homeowner shot and killed his wife in the home and then turned the gun on himself and committed suicide. In September 2006, Mr. and Mrs. Jacono purchased the home from the estate of the prior owners for $450,000 - which amount represented a savings of over $100,000 from the fair market value. The Jaconos then invested several thousand dollars to clean and renovate the home. They listed the property for sale in June 2007. At the time of the listing, they informed the broker of the prior murder-suicide. The Jaconos also asked their attorney and the Pennsylvania Real Estate Commission if they were legally obligated to disclose the murder-suicide. Both the attorney and the Real Estate Commission informed the Jaconos that a murder-suicide was not a “material defect” that had to be disclosed. The real estate broker also contacted the Real Estate Commission and was told the same thing. After receiving the opinion of their attorney and the Real Estate Commission, the Jaconos completed and signed a Seller’s Property Disclosure Statement, which did not disclose the prior murder-suicide.

Also in June 2007, Ms. Milliken, a resident of California who was unfamiliar with the murder-suicide at the property in Pennsylvania, viewed the home and received a copy of the Seller’s Disclosure. She entered into a contract to purchase the home. She asked her real estate agent about why the Seller had paid only $450,000 just a year and a half before her contract for $610,000 to purchase the same home. The agent stated that perhaps the Jaconos had purchased the property from a mortgage foreclosure. Despite being provided with title documents showing that the Jaconos had purchased the home from an estate, Ms. Milliken made no further investigation concerning the prior owners. After the closing of title, and after moving into the home, Ms. Milliken was informed that there had been a murder suicide in her home less than two years prior to her purchase.

Ms. Milliken sued the Jaconos and the real estate brokers for the non-disclosure of the murder-suicide. Both the Jaconos and the real estate broker filed motions to dismiss the claims on the grounds that a murder-suicide was not a “material defect” of the property. The trial court granted the motions and dismissed the claims. Ms. Milliken then appealed the trial court’s decision. The appeal eventually made its way all the way up to the Pennsylvania Supreme Court, which stated they would review the trial court’s decision to determine “whether the occurrence of a murder/suicide inside a house constitutes a material defect of the property” that must be disclosed to potential buyers.

The Pennsylvania Supreme Court ruled that a murder-suicide is not a material defect that had to be disclosed to potential buyers. The Court reasoned:

"Regardless of the potential impact a psychological stigma may have on the value of property, we are not ready to accept that such constitutes a material defect. The implications of holding that non-disclosure of psychological stigma can form the basis of a common law claim for fraud or negligent misrepresentation, or a violation of the [Consumer Protection Law's] catch-all, even under the objective standard posited by appellant, are palpable, and the varieties of traumatizing events that could occur on a property are endless. Efforts to define those that would warrant mandatory disclosure would be a Sisyphean task. One cannot quantify the psychological impact of different genres of murder, or suicide — does a bloodless death by poisoning or overdose create a less significant "defect" than a bloody one from a stabbing or shooting? How would one treat other violent crimes such as rape, assault, home invasion, or child abuse? What if the killings were elsewhere, but the sadistic serial killer lived there? What if satanic rituals were performed in the house?

It is safe to assume all of the above are events a majority of the population would find disturbing, and a certain percentage of the population may not want to live in a house where any such event has occurred. However, this does not make the events defects in the structure itself. The occurrence of a tragic event inside a house does not affect the quality of the real estate, which is what seller disclosure duties are intended to address. We are not prepared to set a standard under which the visceral impact an event has on the populace serves to gauge whether its occurrence constitutes a material defect in property. Such a standard would be impossible to apply with consistency and would place an unmanageable burden on sellers, resulting in disclosures of tangential issues that threaten to bury the pertinent information that disclosures are intended to convey."

Milliken v. Jacono, 103 A.3d at 810.

In New Jersey, the duty to disclose is not limited to Real Estate Commission regulations. Rather, New Jersey courts have also imposed upon New Jersey Realtors a common law duty to disclose. In Weintraub v. Krobatsch, 64 N.J. 445 (1974), the New Jersey Supreme Court quoted with approval, a holding by the Tennessee Supreme Court, which stated that: a real estate broker or agent “is not only liable to a buyer for his affirmative misrepresentation and intentional misrepresentations to a buyer, but he is also liable for mere non-disclosure to the buyer of defects known to him and unknown and unobservable by the buyer.” Id. at 454 quoting Simmons v. Evans, 185 Tenn. 282, 206 S.W.2d 295 (1947). The Weintraub case dealt with an insect (roach) infestation, and the Simmons matter dealt with limited water service to the home. Thus, both cases dealt with a “physical condition” of the property. Arguably, the Weintraub case does not broaden the Real Estate Commission disclosure requirement found in N.J.A.C. 11:5-6.4 to conditions that are not “physical”.

The ruling of the Pennsylvania Supreme Court in Milliken v. Jacono, supra, is not binding on New Jersey courts. Until a New Jersey court decides the issue, the safest course of action is to disclose any adverse fact regarding a listed property that is known to the Realtor®.

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